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ITM 27E

08-Jul-2015

Edward Yeo Jay Tong

The Lego Group

1.

Introduction
The word Lego is renowned worldwide, and is recognized by kids of all ages, and it
will be used for the case study of this essay. The essay consists of the PESTEL
Analysis, Porters five forces, and the Corporate Social Responsibility of the Lego
Group.
Lego is a combination of two Danish words, led and godt, which means play well.
The Lego Group was a startup by a carpenter, Ole Kirk Christiansen, who only sold
stepladders, ironing boards and wooden toys. He decided to focus on the toy industry,
after a fire burned down the factory.
Lego bought a plastic injection-molding machine in 1947, which mass produced plastic
toys, and the ever so popular Lego Brick. In 1958, Ole passed away, and his son,
Godtfred, took over the company. By the early 1960s, LEGO went international, and
would release their popular theme sets a decade later (The Lego Group History,
2015).

2.

Discussion

2.1

General Environment Analysis: PESTEL Analysis

2.1.1

Political Factor
Political factors could either impact organizations with operation restrictions or
provide business opportunities (Bateman & Snell, 2013). Examples of political
factors include government regulations like, law enforcement, tariffs, tax
policies, to political stability and more. These factors, would affect organizations
in their execution of strategic implementations. Therefore, it is important for a
corporation to anticipate any shifts in power, in order for them to thrive.

LEGO POM Assignment 1

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08-Jul-2015

Edward Yeo Jay Tong

Singapore is dominantly controlled by a single ruling party, so there is a lesser


chance of political turbulence and more national stability. This is an opportunity
as a large corporation like Lego would find it easier to further expand its
business. Furthermore, with effective tax policies (IRAS, 2015), Singapore
would be more attractive to conduct business, and Lego would be able to
leverage upon this advantage to maximize their profits.

2.1.2

Economic Factor
The economic factor refers to the finance welfare of a nation. The factors
consist of influences that impacts corporations in decision making. Some of
these influences include economic growth rates, interest rates, unemployment
rates and currency stability. These characteristics will affect the organizations
expenditure, scalability, and the demand of customers (Bateman & Snell, 2013).
Singapores unemployment rate is considered to be one of the lowest rates in
the world. The workforce is also considered highly skilled, which means that a
majority of Singaporeans have high disposable incomes. Low unemployment
rate would be a threat as Lego would have a hard time to find personnel to run
their business operations. The second would be an opportunity, because Lego
can leverage on the high spending power that Singaporeans have (Key
Household Income Trends, 2014).

2.1.3

Social Factor
The Social Factor represent trends of peoples thoughts and behaviors,
culture, beliefs and values of the community (Daft, 2009). All of which have a
large effect on strategic decisions. Such strategic decisions could refer to
marketing campaigns, promotions and pricing. By using the media, the
government also plays a crucial role in motivating trends. Which in turn would
allow businesses in those industries, to flourish and rein in more profits.
Being in a first world country, the younger generation of Singaporeans are
more educated, and more westernized. They are also heavily influenced by
media.

However, Singapore is experiencing a rise in the aging population

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08-Jul-2015

Edward Yeo Jay Tong

(Elderly, Youth and Gender Profile, 2014). This is bad for the toy industry,
especially Lego, because their target audience is the younger generation.

2.1.4

Technological Factor
Technological factors range from heavy manufacturing and industrialization, to
utilizing information technology for business. Modernized, Singapores main
technological factor would be information technology. The internet is an
example of information technology which could greatly influence the business
environment of many companies (Boddy, 2008). This means that corporations
would use innovative techniques through online platforms like social media, to
engage and promote to the local online community.
Being highly IT oriented, Singaporeans would have the latest information on
their fingertips. This is a threat, because physical barriers are torn down, and
more corporations can find ways to reach out to Singaporeans. Also, video
games are now more popular than toys (Garland, 2012). This would impact
Legos sales as children are now focused in another direction. Therefore, Lego
would have to find new ways to motivate their customers to buy their products.

2.2

Competitive Environment Analysis (Porters Five Forces)

2.2.1

Threat of New Entrants


Threat of New Entrants refer to startups that might enter an industry, which
would compete with existing organizations. Factors that prevent these new
entrants are called barriers to entry. Today, Internet technology has lowered the
barriers to entry by enabling startups to avoid setting up physical stores, and
establish online presence (Daft, 2009). Such advantages would allow more new
entrants to enter the industry, and they would affect sales of organizations.
Despite being a reputable brand in Singapore, the threat of new entrants for
Lego is high. The barrier for entry is low, since new entrants would be able to
take advantage of the popularity of Legos brand, and its simple complexity to
copy the product. There are no government policies to prevent new startups
from selling similar products. Another factor that might allow new entrants to

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Edward Yeo Jay Tong

enter the industry is to leverage on the fact that Lego products are slightly
pricey.

Even though new entrants would find matching the quality of Lego

products difficult (Product Safety & Quality, 2015), new entrants would find it
easy to penetrate the industry

2.2.2

Bargaining Power Of Suppliers


The bargaining power of suppliers is an important aspect of a companys
livelihood. Supplies include raw materials, information to financial capital, all of
which could impact a corporations success (Worthington & Britton, 2006). The
supplier would also be able to reduce an organizations profits, should they raise
the prices of their services. This would only occur when said organizations are
unable to pass on the price increase to its customers.
The bargaining power of raw material suppliers do not affect Lego in Singapore,
because Lego manufacture their products in other countries.

In fact, the

supplier of Lego products would be the Lego Group, and the organizations
affected are the affiliates of the company in Singapore. Based on this scenario,
the rating would be low, because Lego has set a standard price that affiliates
should sell their products. This is to stop them from toppling one another. This
method would enable said affiliates to continue selling Lego products.

2.2.3

Bargaining Power Of Customers


Customers are crucial, because they determine the survivability of an
organizations. Customers bargaining power, which can demand lower prices,
higher quality, or better service are some of the important factors that affect the
profitability of a company (Bateman & Snell, 2013). This bargaining power that
customers have, is an important factor, because it could determine the
survivability of an organization. The bargaining power can also threaten an
organization by supporting their competitors products.

The bargaining power of Customers is high. There are low switching costs,
when customers purchase Lego products. This means that customers are free
to patronize any other toy brands out in the market. Also, having a high
disposable income, Singaporeans are able to purchase more goods. In an

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Edward Yeo Jay Tong

attempt to counter the high customer bargaining power, Lego offer replacements
for damaged/ missing pieces (Lego Customer Service, 2015).

2.2.4

Threat of Substitutes
Threat of Substitutes refers to how alternatives impact a product or brand.
Alternatives include technological advances and economic efficiencies that
firms can develop substitutes for existing products (Bateman & Snell, 2013).
Potential substitutes that may be viable in the future are also considered a
threat, because they are possibilities that could affect a brand.

The threat of substitutes for Lego is high. In Singapore, almost everyone has
an association to technology, and one of the main substitutes, to Lego, are
video games (Andronico, 2014). Video games are slowly replacing toys,
because they are available on many platforms. From gaming consoles to
applications on mobile devices, such as phones and tablets. This would impede
on Lego sales, as children would want to play games instead of toys. To
counter this, Lego had already considered this situation as a potential substitute,
and developed video games, based on their theme sets, to maintain their
customer base.

2.2.5

Competitive Rivalry
Competitive rivalry refers to the amount of competition an organization would
face. To understand the competition, organizations are required to identify their
competitors. Competitors would compete for the same customer pool by selling
similar products, which enable customers to switch between organizations.
Said competitors can range from small medium enterprises, to Multinational

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Corporations. An extremely competitive market also has a high threat of new


entrants (Boddy, 2008).
The competitive rivalry for Lego in Singapore is high.

Firstly, there are

numerous brands that come up with similar brick toy concepts like Mega Bloks,
owned by Mattel, Nanoblocks, Kre-O and other knockoffs in the toy industry.
Also, these competitors niche themselves in specific themes that Lego does not
offer.

Also, competitors product prices are lesser than Lego, making it a

tougher competition for Lego (Mintz, 2014). Despite having many competitors,
Lego can leverage on the reputation that they have developed over the past
years.

2.3

Summary Of The External Environment


The opportunities that Lego can leverage upon is the high disposable income of
Singaporeans, low tax rates, zero tariffs and the national stability of Singapore.
Whereas, the threats that Lego face include competitors lower prices, video
games being more popular toys, and Singapores aging population. In order for
Lego to overcome its threats, they would have to differentiate in their strategies
or think of new ideas.

3.

Analysis on CSR Strategy


3.1

Corporate Social Responsibility


CSR is an abbreviation of Corporate Social Responsibility. Corporate Social
Responsibility refers to the involvement and actions of organizations, beyond
their legal and economic commitments, to do the right things and act in ways
that are good for society (Robbins & De Cenzo, 2013). Examples of Corporate
Social Responsibility include, organising charities, holding fund raisers, working
towards wildlife conservation and environmental protection. There are
advantages and disadvantages of implementing CSR in an organization. Some
advantages are, Moral responsibilities, public representation, public beliefs and
stockholder interests. Whereas, disadvantages include high expenses, lack of
specific skills and accountability (Robbins & De Cenzo, 2013).
The advantages are beneficiary, because they would increase the potential for
increase in profits. As they would enable strong public appeal, which would

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Edward Yeo Jay Tong

increase the organizations reputations. They would also draw more investors,
due to their rise in popularity.
The disadvantages are damaging, because committing to social responsibility
would increase expenses, and it would reduce the overall profitability of the
corporation. Also, if the corporation do not invest time and the right personnel to
manage their CSR project, there would be a lack of skills and little accountability
of the consequences in CSR operations.
3.2

Corporate Social Responsibility for Lego


Lego has performed CSR in a few aspects. For instance, under business operations,
Lego primes themselves in conducting business transparently, in order to promote
ethical business practices (Lego Responsible Business, 2015). Also, Lego came up
with new measures to demote corruption amongst its directors (Lego Responsible
Business Behaviour, 2015).
Lego also focuses on being environmentally friendly. Lego prioritizes in manufacturing
Lego bricks in the most environmentally friendly way.

They also work with their

suppliers to ensure that there are lesser wastes, and to reduce carbon emmissions
(Lego Environment, 2015). Lego cancelled their contract with Shell, after one million
signatures were collected to petition against their partnership, because Shell planned to
drill for oil in the Artic (Lego ends 50 year link with Shell, 2014). This would allow
them to publicly express their stand on protecting nature. By performing such actions,
there would be a boost of investor confidence in Lego.

Furthermore, their profit

potential would increase, as more consumers would now have faith in their products.
So far, Lego has done a good job in maintaining their CSR effort, and has an positive
increase in productivity and environmental friendliness.

4.

Conclusion

Lego is internationally renowned, and has many competitors. Its competitors compete by selling
similar products at lower prices. Furthermore, with a low birthrate in Singapore, there is a limited
and dwindling customer base. Therefore, Lego would have to develop new ways to differentiate
from their competitors.
Also, to overcome the rising popularity of video games, Lego has partnered with gam developers
to create video games based on their theme sets, so that they could keep their customer base.
This is a method of innovation, which Lego needs to have, in order to stay on top in the toy industry.

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Edward Yeo Jay Tong

Reference List
Books:
1. Bateman, T., & Snell, S. (2013). The Competitive Environment. In Management
(fifth ed., pp. 43 - 47). New York, NY: McGraw-Hill.
2. Bateman, T., & Snell, S. (2013). The Competitive Environment. In Management
(fifth ed., pp. 48 - 52). New York, NY: McGraw-Hill.
3. Boddy, D. (2008). The competitive environment Porters five forces. In
Management: An introduction (fourth ed., p. 89 & 91). Harlow, England: FT
Prentice Hall
4. Boddy, D. (2008). The competitive environment Porters five forces. In
Management: An introduction (fourth ed., p. 87). Harlow, England: FT Prentice
Hall
5. Daft, R. (2009). The External Environment. In New era of management (Ninth
ed., International ed., p. 66). Mason, OH: South-Western.
6. Daft, R. (2009). The External Environment. In New era of management (Ninth
ed., International ed., p. 196). Mason, OH: South-Western.
7. Robbins, S., & DeCenzo, D. (2013). What Does Society Expect From
Organizations And Managers? In Fundamentals of management: Essential
concepts and applications (eigth ed., p. 54). Upper Saddle River, NJ: Pearson.
New Era of management.
8. Worthington, I., & Britton, C. (2006). Market Structure. In The business
environment (fifth ed., p. 382). Harlow: Financial Times Prentice Hall.

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Edward Yeo Jay Tong

Websites:
1.

About

Us:

The

Lego

Group

History.

(July

8,

2015).

Retrieved

from

http://www.lego.com/en-us/aboutus/lego-group/the_lego_history/1940
2. Corporate Tax Rates, Corporate Income Tax Rebates, Tax Exemption Schemes and
SME

Cash

Grant.

(July

8,

2015).

Retrieved

from:

https://www.iras.gov.sg/irashome/Businesses/Companies/Learning-the-basics-ofCorporate-Income-Tax/Corporate-Tax-Rates--Corporate-Income-Tax-Rebates--TaxExemption-Schemes-and-SME-Cash-Grant/
3. Elderly Statistics of Singapore. (July 8, 2015). Retrieved from:
http://www.singstat.gov.sg/docs/default-source/default-documentlibrary/statistics/browse_by_theme/population/statistical_tables/elderly.xls
4. Lego Customer Service. (July 8, 2015). Retrieved from http://service.lego.com/en-us/
5. Lego ends 50 year link with Shell. (October 9, 2014.). Retrieved from:
http://www.greenpeace.org/international/en/press/releases/LEGO-ends-50-year-linkwith-Shell-after-one-million-people-respond-to-Save-the-Arctic-campaign/
6. Lego

Responsibility

Report

2014.

(July

8,

2015).

Retrieved

from:

http://www.lego.com/enus/aboutus/responsibility/responsibilityreport2014/results2014/results-2014
7.
8. Lego: Business Behaviour. (July 8, 2015). Retrieved from: http://www.lego.com/enus/aboutus/responsibility/responsibilityreport2014/responsiblebusiness/responsiblebusiness
9. Lego: Environment. (July 8, 2015). Retrieved from: http://www.lego.com/enus/aboutus/responsibility/responsibilityreport2014/responsiblebusiness/environment
10. Lego:

Responsible

Business

Behaviour.

(July

8,

2015).

Retrieved

from:

http://www.lego.com/enus/aboutus/responsibility/responsibilityreport2014/responsiblebusiness/responsiblebusiness-behaviour
11. Singstat Household Income Trends 2014. (July 8, 2015). Retrieved, from
http://www.singstat.gov.sg/docs/default-source/default-documentlibrary/publications/publications_and_papers/household_income_and_expenditure/pps21.pdf

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12. Andronico, M. (February 22, 2014). Kids Are Playing With Screens More Than
Traditional

Toys,

Survey

Says.

Retrieved

from:

http://www.huffingtonpost.com/2014/02/24/kids-playing-with-screens_n_4834484.html
13. Garland, I. (2012, June 25). Forget dolls... study reveals modern girls prefer video
games. Retrieved from: http://www.dailymail.co.uk/news/article-2164026/Forget-dolls-study-reveals-modern-girls-prefer-video-games.html
14. Mintz, Z. (September 6, 2014). Lego Prices May Cause Sticker Shock Always Stick
Together. Retrieved July 8, 2015, from http://www.ibtimes.com/lego-prices-may-causesticker-shock-toy-blocks-will-always-stick-together-1680324

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